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GM, Chrysler Must Revamp Plans to Get More U.S. Aid (Update2)


By John Hughes

March 30 (Bloomberg) -- General Motors Corp. and Chrysler LLC must
overhaul their recovery plans with deeper concessions to justify further
taxpayer aid, and bankruptcy may ultimately be their best chance, an Obama
administration official said.

The administration demanded the resignation of GM Chief Executive Officer
Rick Wagoner, and the company said he will be replaced by Fritz Henderson,
its president and chief operating officer. GM will also replace most of
its board and must increase reliance on producing more fuel-efficient
vehicles, under findings to be announced today at the White House by
President Barack Obama.

Chrysler will get $6 billion in aid only if it completes a partnership
with Italian carmaker Fiat SpA in 30 days, said the administration
official, who spoke to reporters and declined to be identified before
Obama presents the decision. Unless it combines with Fiat, Chrysler won’t
get any more U.S. help because it isn’t viable as a stand-alone company,
the administration found.

Auburn Hills, Michigan-based Chrysler values its proposed technology
sharing with Turin-based Fiat at $8 billion to $10 billion. Assuming the
accord between the two companies is approved, Fiat will produce its first
model with Chrysler in 2011, Fiat CEO Sergio Marchionne has said.

Detroit-based GM sought as much as $16.6 billion in additional aid after
receiving $13.4 billion since December. Chrysler sought $5 billion after
receiving $4 billion. Both had to show progress by the end of this month
in matters such as GM’s need to reduce unsecured debt by two-thirds.

Shares Plunge

General Motors fell as much as 57 cents, or 21 percent, to 2.15 euros and
was down 15 percent as of 10:18 a.m. in Frankfurt. The stock has plunged
22.6 percent this year in Germany. GM tumbled 87 percent in New York Stock
Exchange composite trading last year, the most among the 30 stocks in the
Dow Jones Industrial Average.

Neither company completed the tasks, the administration official said. The
aid plans submitted to the government Feb. 17 don’t warrant additional
assistance, the administration concluded. GM’s plan to cut unsecured debt
by two-thirds wasn’t sufficient, and Chrysler’s debt was far beyond what
the company could sustain, the official said.

GM’s plan wouldn’t lead to success even in an improved economy, the
administration found. The new strategy sought by the administration would
focus on sustainable profit and significant changes in brands, workforce,
nameplates and the retail network. Board member Kent Kresa will serve as
GM’s interim chairman.

Kresa is a former chairman and chief executive of Northrop Grumman Corp.,
the third-largest U.S. defense company. He is also chairman of Avery
Dennison Corp., which develops self adhesives for consumer products.

Kresa, Henderson Comment

It’s “not yet known” who the board will nominate to constitute the new
majority of directors at the next annual meeting, Kresa said in a
statement posted on GM’s Web site. Wagoner said in a separate statement
that Henderson is “an excellent choice” to replace him and “the ideal
person” to lead the company through restructuring.

GM, which will continue to receive an undisclosed amount of government aid
as it develops a new plan over 60 days, will get greater guidance from the
Treasury and outside advisers in the process than previously, according to
the administration. The government was silent on how much more aid GM may
receive if it devises a successful plan.

Chrysler’s plan included assumptions that were unrealistic or overly
optimistic, according to the administration. Chrysler is being required to
get greater concessions from the United Auto Workers than its plan
requires and must get rid of the vast majority of outstanding secured
debt.

The government will support Chrysler for 30 days as it attempts to make
final its agreement with Fiat. Chrysler has proposed giving Fiat a 35
percent stake in the company.

Chrysler Corp., as it was known then, took out $1.2 billion in
government-backed loans in 1980 and repaid the money in 1983.

Quick Bankruptcy

Both companies’ best chance at success may include a quick and surgical
bankruptcy, according to the administration. Unlike a liquidation or
conventional bankruptcy, a structured process would make it easier for the
companies to clear away liabilities.

The bankruptcy process could be as short as 30 days, and the government
would provide so-called debtor-in-possession financing for the companies
if needed, according to the administration. Still, bankruptcy isn’t the
administration’s first choice, the official said.

To help encourage car sales, the administration will back warranties so
consumers who buy cars during the restructuring have confidence the
guarantees will be honored even if the companies go out of business,
according to the administration.

Edward Montgomery, an economist and former Labor Department deputy
secretary, will be appointed to a new post of Auto Recovery Director to
help communities hurt by job losses in the industry.

Sorry, but the upheaval will happen when the people get tired of the White
House firing private citizens. If it ever happens, that is.

The White House, particularly Big Lips should have nothing to do with this.
The company should float or sink on its own. Just like any other business
in the USA.

Steve